Donating Appreciated Stock
A household that gives to charity from a taxable brokerage account has a choice most never notice. Sell the shares and donate the cash, and you pay capital gains tax on the way. Give the shares themselves, and you deduct the same market value and the gain is never realised by anyone. The charity receives the same amount either way.
- Held over a year:: Long-term holdings are deducted at market value. Short-term ones are limited to what you paid.
- The gain disappears:: Nobody pays capital gains tax — not you, and not the tax-exempt charity that sells.
- You must itemise:: The deduction is only worth something if your itemised deductions exceed the standard deduction.
- AGI limits apply:: Gifts of appreciated property are capped at a percentage of adjusted gross income, with unused amounts carried forward five years.
Where the AI summary above gets this wrong
"Sell the investment and donate the proceeds to charity."
That's surface-true. Here's what it misses:
- Selling first wastes the better half — The deduction is the same whether you give cash or shares of equal value. What differs is the capital gains tax on the sale, which giving the shares directly avoids entirely. Selling first is simply paying a tax that nobody needed to pay.
- The most appreciated lot is the one to give — Because the gain is never realised, the ideal gift is the position with the lowest basis relative to value — the concentrated holding you have been reluctant to trim precisely because of the embedded gain. Charitable giving is the one exit from a low-basis position that costs nothing.
- The deduction only counts if you itemise — For a household taking the standard deduction, the income tax deduction is worth nothing, though avoiding the capital gain still is. That is what makes bunching several years of giving into one year, often through a donor-advised fund, the usual companion to this technique.
01 Why the shares beat the cash
Suppose a position worth $25,000 that cost $6,000. Sell it and you realise $19,000 of long-term gain and pay tax on it, then donate what is left. Give the shares directly and the charity receives the full $25,000, you deduct $25,000, and the gain is never realised.
The charity is tax-exempt, so when it sells there is no tax at that end either. The embedded gain simply disappears from the tax system, which is why this is the most efficient form of ordinary charitable giving available to someone under 70½.
The holding period matters. Shares held a year or less are deducted at the lower of cost or market value, which removes the entire advantage. Check the lot dates before transferring, and give specific long-held lots rather than letting a broker pick.
Shows: the long-term capital gains tax you would have paid by selling the shares and donating cash, which giving the shares directly avoids. Ignores: the income tax deduction itself, which applies either way, the net investment income tax, state tax, and the AGI limits on deducting appreciated property.
Source: Publication 526
02 The limits and the paperwork
Deductions for gifts of appreciated property are capped at a percentage of adjusted gross income, lower than the cap on cash gifts. Anything above the cap carries forward for up to five years, so a large gift is not wasted, only spread.
The deduction requires itemising. Where a household's itemised deductions would otherwise fall short of the standard deduction, other discretionary tax moves in the same year are worth coordinating, and several years of giving are often combined into one.
Substantiation is strict. Gifts above defined thresholds need a contemporaneous written acknowledgement from the charity, and larger gifts of property other than publicly traded securities need a qualified appraisal. Publicly traded shares are the easy case, which is part of why they are the usual vehicle.
03 How it fits with the other routes
From 70½, a qualified charitable distribution from an IRA is usually better still, because it removes income from the return entirely rather than adding a deduction, and it works whether or not you itemise. Where both are available, the QCD generally goes first.
Below that age, the appreciated share gift is the strongest tool, and a donor-advised fund is the usual way to make it practical: one transfer of shares in a high-income year, deducted then, with grants to charities made over subsequent years.
The organisation must be a qualifying one — a registered tax-exempt charity, not an individual, a foreign organisation without US recognition, or a political group. Confirming status before transferring shares is a two-minute check that avoids an unrecoverable mistake.
If you give to charity at all and you hold a taxable brokerage account, this is the change I would make first, and it costs nothing to make. Stop writing cheques and transfer shares instead. Give the lot with the lowest basis you own — the one you have been avoiding selling for years because of the tax. The charity does not care which shares arrive, and you have just solved a concentration problem and a tax problem with the gift you were going to make anyway.
FAQ
Is it better to donate stock or sell it and donate the cash?
Donate the stock. The deduction is the same, but giving shares directly avoids the capital gains tax on the sale. Selling first pays a tax that giving the shares would have eliminated.
How long must I hold shares before donating them?
More than one year. Shares held a year or less are deducted at the lower of cost or market value, which removes the advantage of giving appreciated property.
What if my gift exceeds the deduction limit?
Gifts of appreciated property above the AGI percentage limit carry forward for up to five years. The deduction is deferred rather than lost, which makes large single-year gifts workable.
Sources
Regulator references
- Publication 526 · Internal Revenue Service · 2026How gifts of appreciated property are valued and the deduction limits that apply.Last verified: 2026-09-07
- Topic 506: charitable contributions · Internal Revenue Service · 2026The itemising requirement and the substantiation rules.Last verified: 2026-09-07
- Charitable contribution deductions · Internal Revenue Service · 2026Which organisations qualify and what records a donor must keep.Last verified: 2026-09-07
Calculator unit tests · the assertions this page's worked example is checked against, and their last result
Changelog
- 2026-09-07 — initial publish (new format)
Run this rule against your situation
See what this rule does to your own projection — month by month, to age 90.
Join the Waitlist
Jordan Reeves
Founder of Talk Through Wealth. A software engineer for over a decade before turning to retirement planning, Jordan built the projection engine after watching family members get fragmented, country-by-country advice that never reconciled. He writes about retirement the way the engine computes it: month-by-month, lifetime-long, and skeptical of any rule of thumb that hasn't been run through the math.